FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 1997

Commission File Number 000-19235

SUMMIT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

SOUTH CAROLINA 57-0892056
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)

Post Office Box 1087
937 North Pleasantburg Drive
Greenville, South Carolina 29602
(Address, including zip code, of principal executive offices)

(803) 242-2265
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

As of October 20, 1997, 1,345,577 shares of $1.00 par value common stock were
outstanding.

SUMMIT FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

September 30, December 31,
1997 1996
-------------- -------------
(Unaudited)

ASSETS:
Cash and interest-bearing deposits. . . . . . . . . $ 7,423 $ 6,026
Federal funds sold. . . . . . . . . . . . . . . . . 13,530 3,000
Investment securities available for sale
(amortized cost of $23,538 and $18,510). . . . . . 23,619 18,511
Investments in stock of Federal Reserve Bank,
Federal Home Loan Bank, and other, at cost . . . . 693 634
Loans, net of unearned income and net of allowance
for loan losses of $1,689 and $1,487 . . . . . . . 111,747 101,205
Premises and equipment, net . . . . . . . . . . . . 2,388 2,502
Accrued interest receivable . . . . . . . . . . . . 1,116 940
Other assets. . . . . . . . . . . . . . . . . . . . 1,466 1,344
-------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . $ 161,982 $ 134,162
============== =============
LIABILITIES & SHAREHOLDERS' EQUITY:
Demand deposits . . . . . . . . . . . . . . . . . . $ 16,084 $ 17,484
Interest-bearing demand deposits. . . . . . . . . . 6,481 6,227
Savings and money market deposits . . . . . . . . . 36,868 23,366
Time deposits, $100,000 and over. . . . . . . . . . 30,446 25,393
Other time deposits . . . . . . . . . . . . . . . . 52,725 45,335
-------------- -------------
TOTAL DEPOSITS . . . . . . . . . . . . . . . . 142,604 117,805
Securities sold under repurchase agreements . . . . 792 761
Other borrowings. . . . . . . . . . . . . . . . . . 4,000 2,550
Accrued interest payable. . . . . . . . . . . . . . 993 823
Other liabilities . . . . . . . . . . . . . . . . . 666 586
-------------- -------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . 149,055 122,525
-------------- -------------
SHAREHOLDERS' EQUITY:
Common stock ($1.00 par value; 20,000,000 shares
authorized; issued and outstanding 1,345,557 and
1,334,409 shares). . . . . . . . . . . . . . . . . 1,346 1,335
Additional paid-in capital. . . . . . . . . . . . . 10,308 10,254
Retained earnings . . . . . . . . . . . . . . . . . 1,220 48
Unrealized net loss on investments available
for sale, net of income taxes. . . . . . . . . . . 53 -
-------------- -------------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . 12,927 11,637
-------------- -------------
TOTAL LIABILITIES AND EQUITY . . . . . . . . . $ 161,982 $ 134,162
============== =============
<FN>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars, except per share data in Thousands)

For the Quarters Ended
September 30,
1997 1996
--------------- ----------------

INTEREST INCOME:
Loans. . . . . . . . . . . . . . . . . . . . . . . $ 2,953 $ 2,351
Taxable investment securities. . . . . . . . . . . 299 307
Nontaxable investment securities . . . . . . . . . 34 8
Federal funds sold . . . . . . . . . . . . . . . . 149 44
Other. . . . . . . . . . . . . . . . . . . . . . . 39 32
--------------- ----------------
3,474 2,742
--------------- ----------------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . 1,660 1,196
Other. . . . . . . . . . . . . . . . . . . . . . . 71 55
--------------- ----------------
1,731 1,251
--------------- ----------------
Net interest income . . . . . . . . . . . . . . . . 1,743 1,491
Provision for loan losses . . . . . . . . . . . . . (45) (128)
--------------- ----------------
Net interest income after provision for loan losses 1,698 1,363
--------------- ----------------
OTHER INCOME:
Service charges and fees . . . . . . . . . . . . . 47 43
Credit card service fees and income. . . . . . . . 59 51
Insurance commission fee income. . . . . . . . . . 53 46
Other income . . . . . . . . . . . . . . . . . . . 100 102
--------------- ----------------
259 242
--------------- ----------------
OTHER OPERATING EXPENSES:
Salaries, wages and benefits . . . . . . . . . . . 669 560
Occupancy. . . . . . . . . . . . . . . . . . . . . 113 99
Furniture, fixtures and equipment. . . . . . . . . 112 106
Other operating expenses . . . . . . . . . . . . . 387 316
--------------- ----------------
1,281 1,081
--------------- ----------------
Net income before income taxes. . . . . . . . . . . 676 524
Provision for income taxes. . . . . . . . . . . . . (244) (202)
--------------- ----------------
NET INCOME. . . . . . . . . . . . . . . . . . . . . $ 432 $ 322
=============== ================
PER SHARE DATA:
Primary . . . . . . . . . . . . . . . . . . . . . $ 0.31 $ 0.23
Fully diluted . . . . . . . . . . . . . . . . . . $ 0.29 $ 0.23
AVERAGE SHARES OUTSTANDING:
Primary and Fully Diluted . . . . . . . . . . . . 1,487 1,411
<FN>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars, except per share data in Thousands)

For the Nine Months Ended
September 30,
1997 1996
--------------- --------------

INTEREST INCOME:
Loans. . . . . . . . . . . . . . . . . . . . . . . $ 8,497 $ 6,398
Taxable investment securities. . . . . . . . . . . 853 952
Nontaxable investment securities . . . . . . . . . 62 22
Federal funds sold . . . . . . . . . . . . . . . . 273 159
Other. . . . . . . . . . . . . . . . . . . . . . . 118 110
--------------- --------------
9,803 7,641
--------------- --------------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . 4,446 3,486
Other. . . . . . . . . . . . . . . . . . . . . . . 198 157
--------------- --------------
4,644 3,643
--------------- --------------
Net interest income . . . . . . . . . . . . . . . . 5,159 3,998
Provision for loan losses . . . . . . . . . . . . . (256) (313)
--------------- --------------
Net interest income after provision for loan losses 4,903 3,685
--------------- --------------
OTHER INCOME:
Service charges and fees . . . . . . . . . . . . . 148 127
Credit card service fees and income. . . . . . . . 180 163
Insurance commission fee income. . . . . . . . . . 149 144
Other income . . . . . . . . . . . . . . . . . . . 275 309
--------------- --------------
752 743
--------------- --------------
OTHER OPERATING EXPENSES:
Salaries, wages and benefits . . . . . . . . . . . 2,010 1,710
Occupancy. . . . . . . . . . . . . . . . . . . . . 344 288
Furniture, fixtures and equipment. . . . . . . . . 325 302
Other operating expenses . . . . . . . . . . . . . 1,131 918
--------------- --------------
3,810 3,218
--------------- --------------
Net income before income taxes. . . . . . . . . . . 1,845 1,210
Provision for income taxes. . . . . . . . . . . . . (674) (464)
--------------- --------------
NET INCOME. . . . . . . . . . . . . . . . . . . . . $ 1,171 $ 746
=============== ==============
PER SHARE DATA:
Primary . . . . . . . . . . . . . . . . . . . . . $ 0.81 $ 0.53
Fully diluted . . . . . . . . . . . . . . . . . . $ 0.79 $ 0.53
AVERAGE SHARES OUTSTANDING:
Primary and Fully Diluted . . . . . . . . . . . . 1,486 1,410
<FN>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996

Shares Amount Additional Retained Unrealized Total
paid-in earnings net shareholders'
capital gain (loss) equity
on
investment
securities
available
for
sale, net of
income
taxes
-------- -------- ------------ ----------- -------------- -------------

Balance at December 31, 1995. . . . . . 1,267 $ 1,267 $ 9,342 - $ 54 $ 10,663
Net income for the year ended 1,002 1,002
December 31, 1996. . . . . . . . . . . - - - -
Change in unrealized net gain (loss) on (54) (54)
investment securities available for
sale, net of income taxes. . . . . . . - - - -
Employee stock options exercised. . . . 4 4 24 - - 28
Issuance of 5% stock distribution . . . 63 63 888 (951) - -
Cash in lieu of fractional shares from (2) (2)
stock distribution . . . . . . . . . . - - - -
------ ------- ----------- ---------- -------------- --------------
Balance at December 31, 1996. . . . . . 1,334 1,334 10,254 49 - 11,637
Net income for the nine months 1,171 1,171
ended September 30, 1997. . . . . . . . - - - -
Change in unrealized net gain (loss) on 53 53
investment securities available for
sale, net of income taxes. . . . . . . - - - -
Employee stock options exercised. . . . 12 12 54 - - 66
------ ------- ----------- --------- -------------- ---------------
Balance at September 30, 1997 . . . . . 1,346 $ 1,346 $ 10,308 $ 1,220 $ 53 $ 12,927
====== ======= =========== ========== ============== ===============

<FN>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMIT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

For the Nine Months Ended
September 30,
1997 1996
--------------- --------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 1,171 $ 746
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . 256 313
Depreciation and amortization . . . . . . . . . . . . . 250 232
Gain on sale of fixed assets. . . . . . . . . . . . . . (29) -
Gain on sale of investments available for sale. . . . . (1) -
Net amortization of net premium on investments. . . . . 5 7
Increase in other assets. . . . . . . . . . . . . . . . (298) (468)
Increase (decrease) in other liabilities. . . . . . . . 224 (424)
--------------- --------------
Net cash provided by operating activities. . . . . . . . . 1,578 406
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale. . . . . . . . (10,832) (7,822)
Proceeds from maturities of securities available for sale 2,809 7,990
Proceeds from sales of securities available for sale. . . 2,991 -
Purchases of Federal Home Loan Bank Stock . . . . . . . . (59) (122)
Net increase in loans . . . . . . . . . . . . . . . . . . (10,299) (17,371)
Purchases of net finance loans receivable . . . . . . . . (499) (1,099)
Purchases of fixed assets . . . . . . . . . . . . . . . . (147) (65)
Proceeds from sale of fixed assets. . . . . . . . . . . . 41 -
--------------- --------------
Net cash used in investing activities. . . . . . . . . . . (15,995) (18,489)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts. . . . . . . . . . . . . 24,798 12,260
Net increase in securities sold under . . . . . . . . . . 30 183
repurchase agreements
Repayment of other borrowings . . . . . . . . . . . . . . (50) (2,000)
Advances from other borrowings. . . . . . . . . . . . . . 1,500 1,700
Proceeds from stock issuance pursuant to. . . . . . . . . 66 28
employee stock option plan --------------- --------------
Net cash provided by financing activities. . . . . . . . . 26,344 12,171
--------------- --------------
Net (decrease) increase in cash and cash equivalents . . . 11,927 (5,912)
Cash and cash equivalents, beginning of period . . . . . . 9,026 15,445
--------------- --------------
Cash and cash equivalents, end of period . . . . . . . . . $ 20,953 $ 9,533
=============== ==============
SUPPLEMENTAL INFORMATION:
Cash paid during period for interest. . . . . . . . . . . $ 4,474 $ 3,725
Cash paid during period for income taxes. . . . . . . . . $ 775 $ 613
Change in market value of investment securities available $ 53 $ (209)
for sale, net of income taxes
<FN>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMIT FINANCIAL CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

NOTE 1 - BASIS OF PRESENTATION:

Summit Financial Corporation (the Company), a South Carolina corporation,
is the parent holding company for Summit National Bank (the Bank), a
nationally chartered bank, and Freedom Finance, Inc. (the Finance Company), a
consumer finance company.

Through its bank subsidiary, which commenced operations in July 1990, the
Company provides a full range of banking services, including the taking of
demand and time deposits and the making of commercial and consumer loans. The
Bank currently has two full service branch locations in Greenville, South
Carolina. The Finance Company commenced operations in November 1994 and makes
and services small installment loans to individuals from its twelve offices
throughout South Carolina.

The unaudited consolidated financial statements of the Company at
September 30, 1997 and for the periods ended September 30, 1997 and 1996 were
prepared in accordance with the instructions for Form 10-Q and, in the opinion
of management, all adjustments (consisting only of items of a normal recurring
nature) necessary for a fair presentation of the financial position at
September 30, 1997, and the results of operations and cash flows for the
periods ended September 30, 1997 and 1996 have been included. The results for
the quarter or nine month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the full year or any other
interim period.

These consolidated financial statements do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the Company's audited consolidated financial statements and
related notes for the year ended December 31, 1996 included in the Company's
1996 Annual Report on Form 10K.

NOTE 2 - CASH FLOW INFORMATION:

The Company considers those amounts included in the balance sheet
captions "Cash and interest-bearing deposits" and "Federal funds sold" to be
cash and cash equivalents, which totaled $20,953,000 and $9,533,000 at
September 30, 1997 and 1996, respectively. Cash includes currency and coin,
cash items in process of collection and due from banks. Included in cash and
cash equivalents are overnight investments and short-term investments with
original maturities of less than six months.

SUMMIT FINANCIAL CORPORATION

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Summit Financial Corporation (the Company) is a financial institution
holding company headquartered in Greenville, South Carolina. The Company has
a wholly-owned bank subsidiary, Summit National Bank (the Bank) and a
wholly-owned consumer finance company subsidiary, Freedom Finance, Inc. (the
Finance Company).

During the quarter ended September 30, 1996, the Company's net income
totaled $432,000 or $.29 per fully diluted share. This is compared to net
income of $322,000 or $.23 per fully diluted share for the same quarterly
period of 1996 or an increase of 35%. For the first nine months of 1997 the
Company reported net income of $1.2 million or $.79 per fully diluted share,
an improvement of approximately $425,000 compared to the net income for the
first nine months of 1996 of $746,000 or $.53 per fully diluted share.

Total assets increased approximately $27.8 million or 21% from December
31, 1996 to September 30, 1997. Deposits increased approximately $24.8
million or 21% during the period. The increase in deposits, combined with the
$1.4 million (57%) increase in other borrowings, funded gross loan growth of
$10.7 million (10%), the $5.1 million (28%) increase in investments available
for sale, and the $10.5 million (351%) increase in federal funds sold during
the same period.

RESULTS OF OPERATIONS - COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1997
AND 1996

GENERAL
The Company reported consolidated net income for the quarter ended
September 30, 1997 of $432,000, compared to net income of $322,000 for the
quarter ended September 30, 1996, or an improvement of approximately $110,000
or 35%. The increase in consolidated earnings for the 1997 period is
primarily attributable to (1) a $253,000 or 17% increase in the Company's net
interest income related to the higher level of earning assets in 1997 as
compared to the prior year combined with the increase in general level of
interest rates during the period and (2) a reduction in the provision for loan
losses for the third quarter of 1997 as compared to the prior year due to the
lower loan originations for the 1997 quarter. The increase in net interest
income was somewhat offset by increases in other operating expenses. The
Company on a stand-alone basis recorded net income of $21,000 for both the
third quarter of 1997 and 1996 related primarily to the interest income from
an intercompany loan to its consumer finance subsidiary.

Summit National Bank recorded net earnings of $435,000 for the quarter
ended September 30, 1997 which was a 43% increase from the third quarter of
1996 earnings of $305,000. The increase in net income for this subsidiary
resulted primarily from a $234,000 (20%) increase in the Bank's net interest
income which was directly related to a 28% higher level of earning assets,
offset somewhat by the 22 basis point reduction in the net interest margin.

The Company's consumer finance subsidiary, Freedom Finance, Inc.,
recorded net losses for both the third quarter of 1997 and 1996 of
approximately $(24,000) and $(4,000), respectively. The higher operating
expenses related to the increase in the number of offices and employees in
1997 as compared to the same period of 1996 was the primary contributor to the
increased loss in 1997.

NET INTEREST INCOME
Net interest income is the difference between the interest earned on
assets and the interest paid for the liabilities used to support those assets.
It is the largest component of the Company's earnings and changes in it have
the greatest impact on net income. Variations in the volume and mix of assets
and liabilities and their relative sensitivity to interest rate movements
determine changes in net interest income. During the quarter ended September
30, 1997, the Company recorded consolidated net interest income of $1.7
million, a 17% increase from the net interest income of $1.5 million for the
quarter ended September 30, 1996. The increase in this amount is directly
related to the increase in the average earning asset and interest-bearing
liability volume of the Company of 27% and 30%, respectively, offset somewhat
by the decline in net interest margin for the Company.

For the quarters ended September 30, 1997 and 1996, the Company's
consolidated net interest margin was 4.69% and 5.05%, respectively. The net
interest margin is calculated as annualized net interest income divided by
year-to-date average earning assets. The decrease in consolidated net
interest margin is related primarily to the increase in the average cost of
liabilities as the Bank offered several promotional deposit rates, combined
with the shift of earning assets to lower yielding federal funds sold and
short-term interest-bearing deposits as the loan growth slowed in the third
quarter of 1997.

INTEREST INCOME
For the quarter ended September 30, 1997, the Company's earning assets
averaged $149.0 million and had an average yield of 9.30%. This compares to
average earning assets of $117.3 million for the third quarter of 1996, also
yielding 9.30%. Thus, the contributor to the increase in interest income of
$732,000 or 27% between the quarters ended September 30, 1996 and 1997 is the
increase in volume of earning assets of 27%.

Consolidated loans averaged approximately 77% of the Company's average
earning assets for the third quarter of 1997. The majority of the Company's
loans are tied to the prime rate (approximately 60% of the Bank's portfolio is
at floating rates), which averaged 8.50% and 8.25% for the quarters ended
September 30, 1997 and 1996, respectively. During the third quarter of 1997,
the Bank's loans averaged $112.7 million, yielding an average rate of 9.10%,
compared to $88.9 million, yielding an average of rate 8.96% for the third
quarter of 1996. The increase in the average yield on the Bank's loans is
primarily related to the 25 basis point increase in the prime lending rate in
late March 1997. The higher level of average loans (which increased 25%),
combined with the increase in average rate, resulted in an increase in
consolidated interest income on loans of $602,000 or 26%.

Investment securities averaged $21.5 million or 14% of average earning
assets and yielded 6.47% (tax equivalent basis) during the third quarter of
1997, compared to average securities of $20.7 million yielding 6.14% for the
quarter ended September 30, 1996. The increase in the average yield of the
investment portfolio is related to the timing, maturity distribution and types
of securities purchased during the latter half of 1996 and into 1997 as well
as the maturities of some investments at lower than current market yields.
The 4% increase in average securities, combined with the increase in average
rate, and resulted in the increase of interest income on securities of $18,000
or 6%.

INTEREST EXPENSE
The Company's interest expense for the quarter ended September 30, 1997
was $1.7 million. The increase of 38% from the comparable quarter in 1996 of
$1.25 million was related to the 30% increase in average volume of
interest-bearing liabilities, combined with the increase in average rate of 31
basis points. Interest-bearing liabilities averaged $128.5 million for the
third quarter of 1997 with an average rate of 5.35%. This compares to average
interest-bearing liabilities of $98.8 million with an average rate of 5.04%
for the quarter ended September 30, 1996. The increase in the average rate
was the result of (1) the higher level of general interest rates in 1997 as
compared to 1996 and (2) the increase in rates paid on money market deposit
accounts and certificates of deposit in 1997 for promotions to increase
deposits.

PROVISION FOR LOAN LOSSES
The amount charged to the provision for loan losses by the Bank and the
Finance Company is based on management's judgment as to the amounts required
to maintain an allowance adequate to provide for potential losses in the loan
portfolio. The level of this allowance is dependent upon growth in the loan
portfolios; the total amount of past due loans; nonperforming loans; known
loan deteriorations and/or concentrations of credit; trends in portfolio
volume, maturity and composition; projected collateral values; general
economic conditions; and management's assessment of potential losses based
upon internal credit grading of the loans and periodic reviews and assessments
of credit risk associated with particular loans.

While it is the Company's policy to charge-off in the current period
loans in which a loss is considered probable, there are additional risks of
future losses which cannot be quantified precisely or attributed to particular
loans or classes of loans. Management uses the best information available to
make evaluations, however, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the assumptions
used in making evaluations. The Company is also subject to regulatory
examinations and determinations as to the adequacy of the allowance, which may
take into account such factors as the methodology used to calculate the
allowance for loan losses and the size of the allowance in comparison to a
group of peer companies identified by the regulatory agencies.

Included in the net income for the quarter ended September 30, 1997 is a
provision for loan losses of $45,000 compared to a provision of $128,000 for
the third quarter of 1996. The Bank had no net loan growth for the third
quarter of 1997 due to numerous large payoffs, while loan growth at the
Finance Company was nominal for the same period, thus the decrease in the
provision required for the comparable quarterly periods.

At September 30, 1997, the consolidated allowance for loan losses was
$1.7 million or 1.49% of total gross loans. This compares to an allowance of
$1.5 million or 1.45% of gross loans at September 30, 1996. For the quarter
ended September 30, 1997, the Company reported net charge-offs of $53,000,
which is a result of the Finance Company net charge-offs of $38,000 (4.65% of
average loans of the Finance Company) combined with the Bank's net charge-offs
for the third quarter of 1997 of $15,000. This is compared to consolidated
net charge-offs of $40,000 for the comparable quarter of 1996. There were no
loans on nonaccrual status at September 30, 1997 and nonaccrual loans for the
prior year were $1,000. Loans past due 90 days and greater totaled $151,000
or 0.13% of gross loans at September 30, 1997 and $94,000 or .10% of gross
loans at September 30, 1996. Generally loans of the Bank are placed on
nonaccrual status at the earlier of when they are 90 days past due or when the
collection of interest becomes doubtful. Loans of the Finance Company are not
classified as nonaccrual, but are charged-off when they become 150 days
contractually past due or earlier if the loan is deemed uncollectible. The
allowance for loan losses at September 30, 1997 represents management's
estimate of potential losses in the loan portfolio at that date.

OTHER INCOME AND EXPENSES
Other income, which is primarily related to service charges on customers'
deposit accounts; credit card interchange fees; merchant discount fees;
commissions on nondeposit investment product sales and insurance product
sales; and mortgage origination fees, was $259,000 for the quarter ended
September 30, 1997 compared to $242,000 for the third quarter of 1996, or an
increase of 7%. Increases in Bank branch related income items were offset by
reductions in nondeposit sale commission income in the third quarter of 1997
as compared to 1996.

For the quarter ended September 30, 1997, total overhead expenses were
$1.28 million which is an increase of 19% over the amount incurred for the
quarter ended September 30, 1996 of $1.1 million. The most significant item
included in other expenses is salaries, wages and benefits which amounted to
$669,000 for the quarter ended September 30, 1997 as compared to $560,000 for
the quarter ended September 30, 1996. The increase of $109,000 or 19% is a
result of (1) normal annual raises; (2) the Finance Company's operations which
increased $30,000 or 19% related to the additional offices and staff between
the third quarters of 1996 and 1997; (3) additional staff added at the Bank
between the fourth quarter of 1996 and September 30, 1997; and (4) additional
bonus accruals pursuant to the Bank's incentive bonus program.

The 13% ($14,000) increase in occupancy expenses and the 6% ($6,000)
increase in furniture, fixtures, and equipment ("FFE") between the third
quarters of 1996 and 1997 are primarily related to normal operations of the
Bank and the additional branches of the Finance Company in the third quarter
of 1997 as compared to the prior year.

Included in the line item "other operating expenses", which increased
$71,000 or 22% from the comparable quarter of 1996, are charges for OCC
assessments; property and bond insurance; Relay/Cirrus switch fees; credit
card expenses; professional services; education and seminars; advertising and
public relations; and other branch and customer related expenses. These items
are related directly to the normal operations of the Bank and increase in
relation to the increase in assets, the higher level of transaction volume,
and the larger number of customer accounts. The Bank's activity increased 26%
and accounted for $57,000 or 80% of the increase and, in addition to normal
volume-related activity had increases in advertising due to several new
deposit promotions and expenses for the check card product introduced in 1997.

Also included in the line item "other operating expenses" is activity of
the Finance Company which includes charges for credit reports, license fees,
acquisition premium amortization, and office support. These items increased
11% between the third quarter of 1997 and 1996 in relation to the volume of
activity, number of branches and number of customer accounts

INCOME TAXES
For the quarter ended September 30, 1997, the Company reported $244,000
in income tax expense, or an effective tax rate of 36%. This is compared to
income tax expense of $202,000 for the same quarter of the prior year, or an
effective tax rate of 38.6%. The reduction in the effective rate is primarily
related to the increase in tax-free municipal investments in 1997 as compared
to the prior year.

RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996

GENERAL
The Company reported consolidated net income for the nine months ended
September 30, 1997 of $1.2 million, compared to net income of $746,000 for the
nine months ended September 30, 1996, or an improvement of approximately
$425,000 or 57%. The increase in consolidated earnings for the 1997 period is
primarily attributable to a $1.2 million or 29% increase in the Company's net
interest income related to the higher level of earning assets in 1997 as
compared to the prior year, combined with the increase in general level of
interest rates during the period. The increase in net interest income was
somewhat offset by increases in other operating expenses. The Company on a
stand-alone basis recorded net income of $62,000 for the nine months ended
September 30, 1997 related primarily to the interest income from an
intercompany loan to its consumer finance subsidiary.

Summit National Bank recorded net earnings of $1.14 million for the nine
months ended September 30, 1997 which was an 64% increase from the first nine
months of 1996 earnings of $698,000. The increase in net income for this
subsidiary resulted primarily from a $869,000 (27%) increase in the Bank's net
interest income which was directly related to a 23% higher level of average
earning assets and a 16 basis point improvement in the net interest margin.
This increase was offset somewhat by a reduction in other income due to a
lower volume of activity in the nondeposit financial services area of the Bank
during the first nine months of 1997 as compared to the prior year, and
increases in other operating expenses.

The Company's consumer finance subsidiary, Freedom Finance, Inc.,
recorded net losses for both the first nine months of 1997 and 1996 of
approximately $(35,000) and $(9,000), respectively. The higher level of
outstanding loans for the 1997 period as compared to the 1996 period which
generated a $278,000 or 39% increase in net interest income was offset
primarily by increases in (1) the provision for loan losses and (2) other
operating expenses resulting from the higher number of offices and employees
in 1997 as compared to the same period of 1996.

NET INTEREST INCOME
Net interest income, the difference between the interest earned and
interest paid, is the largest component of the Company's earnings and changes
in it have the greatest impact on net income. Variations in the volume and
mix of assets and liabilities and their relative sensitivity to interest rate
movements determine changes in net interest income. During the nine months
ended September 30, 1997, the Company recorded consolidated net interest
income of $5.2 million, a 29% increase from the net interest income of $4.0
million for the nine months ended September 30, 1996. The increase in this
amount is directly related to the increase in the average earning asset and
interest-bearing liability volume of the Company of 27% and 23%, respectively,
combined with the 11 basis point increase in the consolidated net interest
margin for the period.

For the nine months ended September 30, 1997 and 1996, the Company's
consolidated net interest margin was 4.81% and 4.70%, respectively. The net
interest margin is calculated as annualized net interest income divided by
year-to-date average earning assets. The increase in consolidated net
interest margin is primarily related to the Bank's net interest margin which
increased 16 basis points as a result of the higher average yield on loans and
investments during the period related to the general rise in interest rates in
1997.

INTEREST INCOME
For the nine months ended September 30, 1997, the Company's earning
assets averaged $144.2 million and had an average tax-equivalent yield of
9.12%. This compares to average earning assets of $113.6 million for the
first nine months of 1996, yielding approximately 8.98%. Thus, the
significant contributor to the increase in interest income of $2.2 million or
28% between the nine months ended September 30, 1996 and 1997 is the increase
in volume of earning assets of 27%, combined with the 14 basis point increase
in average yield.

Consolidated loans averaged approximately 76% of the Company's average
earning assets. The majority of the Company's loans are tied to the prime
rate (approximately 60% of the Bank's portfolio is at floating rates), which
averaged 8.43% and 8.28% for the nine months ended September 30, 1997 and
1996, respectively. During the first nine months of 1997, the Bank's loans
averaged $107.8 million, yielding an average of 9.12%, compared to $84.0
million, yielding an average of 8.17% for the first nine months of 1996. The
increase in the average yield on the Bank's loans is primarily related the 14
basis point increase in the average prime lending between the two periods,
combined with higher pricing on new loan originations. The increase in
average yield of the Finance Company loans contributed to the higher
consolidated average yield on loans which increased to 10.39% for the first
nine months of 1997 compared to 10.01% for the first nine months of 1996. The
higher level of average loans, combined with the increase in average rate,
resulted in an increase in consolidated interest income on loans of $2.1
million or 33%.

Investment securities averaged $19.8 million or 14% of average earning
assets and yielded 6.40% (tax equivalent basis) during the first nine months
of 1997, compared to average securities of $21.8 million yielding 6.02% for
the nine months ended September 30, 1996. The increase in the average yield
of the investment portfolio is related to the timing, maturity distribution
and types of securities purchased during the latter half of 1996 and into 1997
as well as the maturities of some investments at lower than current market
yields. The 9% decrease in average securities (which was primarily related to
maturities of the holding company's securities being reinvested in
intercompany borrowings) was offset somewhat by the increase in average rate,
and resulted in the decrease of interest income on securities of $59,000 or
6%.

INTEREST EXPENSE
The Company's interest expense for the nine months ended September 30,
1997 was $4.6 million. The increase of 27% from the comparable nine months in
1996 of $3.6 million was related to the 23% increase in average volume of
interest-bearing liabilities, combined with the increase in average rate of 18
basis points. Interest-bearing liabilities averaged $118.2 million for the
first nine months of 1997 with an average rate of 5.25%. This is compared to
average interest-bearing liabilities of $95.9 million with an average rate of
5.07% for the nine months ended September 30, 1996. The increase in the
average rate was the result of (1) the higher level of general interest rates
in 1997 as compared to 1996 and (2) the increase in rates paid on money market
deposit accounts and certificates of deposit in 1997 for promotions to
increase deposits.

PROVISION FOR LOAN LOSSES
As previously discussed under the quarterly analysis, the amount charged
to the provision for loan losses by the Bank and the Finance Company is based
on management's judgment as to the amounts required to maintain an allowance
adequate to provide for potential losses in the loan portfolio.

Included in the net income for the nine months ended September 30, 1997
is a provision for loan losses of $256,000 compared to a provision of $313,000
for the first nine months of 1996. The decrease in the provision required is
related to the lower net originations experienced by the Company during the
first three quarters of 1997 as compared to the same period of 1996.

OTHER INCOME AND EXPENSES
Other income, which is primarily related to service charges on customers'
deposit accounts; credit card interchange fees; merchant discount fees;
commissions on nondeposit investment product sales and insurance product
sales; and mortgage origination fees, was $752,000 for the nine months ended
September 30, 1997 compared to $743,000 for the first nine months of 1996, or
an increase of 1%. Increases in Bank branch related income items were offset
by reductions in nondeposit sale commission income during the first nine
months of 1997 as compared to 1996.

For the nine months ended September 30, 1997, total overhead expenses
were $3.8 million which is an increase of 18% over the amount incurred for the
nine months ended September 30, 1996 of $3.2 million. The most significant
item included in other expenses is salaries, wages and benefits which amounted
to $2.0 million for the nine months ended September 30, 1997 as compared to
$1.7 million for the nine months ended September 30, 1996. The increase of
$300,000 or 17% is a result of (1) normal annual raises; (2) additional
accruals under the Bank's incentive bonus program; and (3) the Finance
Company's operations which increased $189,000 or 43% related to the additional
offices and between the first nine months of 1996 and 1997. The Finance
Company's operations accounted for 63% of the increase in salaries and
benefits for the first nine months of 1997 as compared to the prior year.

The 19% ($56,000) increase in occupancy expenses and the 8% ($23,000)
increase in furniture, fixtures, and equipment ("FFE") between the first nine
months of 1996 and 1997 are primarily related to an $8,000 vault door repair
at the Bank during the first nine months of 1997, and the additional branches
of the Finance Company in the first nine months of 1997 as compared to the
prior year. The Finance Company's activity accounted for 53% and 79%,
respectively, of the above increases in occupancy and FFE.

Included in the line item "other operating expenses", which increased
$213,000 or 23% from the comparable nine months of 1996, are charges for OCC
assessments; property and bond insurance; Relay/Cirrus switch fees; credit
card expenses; professional services; education and seminars; advertising and
public relations; and other branch and customer related expenses. These items
are related directly to the normal operations of the Bank and increase in
relation to the increase in assets, the higher level of transaction volume,
and the larger number of customer accounts. The Bank's activity accounted for
$113,000 or 53% of the increase and, in addition to normal volume-related
activity had increases in advertising due to several new deposit promotions;
expenses for the check card product introduced in 1997; and higher
professional and outside service fees related to additional technology
consulting engagements during 1997.

Also included in the line item "other operating expenses" is activity of
the Finance Company which includes charges for credit reports, license fees,
acquisition premium amortization, and office support. These items increase in
relation to the volume of activity, number of branches and number of customer
accounts. The Finance Company added 3 new branches between September 1996 and
1997.

INCOME TAXES
For the nine months ended September 30, 1997, the Company reported
$674,000 in income tax expense, or an effective tax rate of 36.5%. This is
compared to income tax expense of $464,000 for the same nine months of the
prior year, or an effective tax rate of 38%. The reduction in the effective
rate is primarily related to the increase in tax-free municipal investments in
1997 as compared to the prior year.

LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. The Company must maintain an adequate liquidity position in order to
respond to the short-term demand for funds caused by the withdrawals from
deposit accounts, maturities of repurchase agreements, extensions of credit
and for the payment of operating expenses. Maintaining an adequate level of
liquidity is accomplished through a combination of liquid assets, those which
can easily be converted into cash, and access to additional sources of funds.
The Company's primary liquid assets are cash and due from banks, federal funds
sold, unpledged investment securities available for sale, other short-term
investments and maturing loans. The Company's primary liquid assets accounted
for 16% and 25% of average assets at September 30, 1997 and 1996,
respectively. In management's opinion, the Company maintains adequate levels
of liquidity by retaining liquid assets and assets which can easily be
converted into cash and by maintaining access to various sources of funds.
The primary sources of funds available through the Bank include borrowing on a
short-term basis from the Federal Home Loan Bank and Federal Reserve System,
purchasing federal funds from other financial institutions, and increasing
deposits by raising rates paid.

The Company's core deposits consist of consumer non-jumbo (i.e. less than
$100,000) time deposits, and consumer and commercial savings accounts, NOW
accounts, money market accounts, and checking accounts. Although such core
deposits are becoming increasingly more costly and interest sensitive for both
the Company and the industry as a whole, such core deposits continue to
provide the Company with a large and stable source of funds. Core deposits
averaged 66% and 65% of earning assets during the first nine months of 1997
and 1996, respectively. The Company closely monitors its reliance on
certificates of deposits greater than $100,000, which are generally considered
less stable and more interest rate sensitive than core deposits. Certificates
of deposit in excess of $100,000, which represented 21% of total deposits at
both September 30, 1997 and 1996, are held primarily by customers in the
Company's service area who have dealt with the Company for an extended period
of time. The Company has no brokered deposits.

Summit Financial Corporation ("Summit Financial"), the parent holding
company, has limited liquidity needs. Summit Financial requires liquidity to
pay limited operating expenses, to service its debt, and to provide funding to
its consumer finance subsidiary, Freedom Finance. Summit Financial has $1.3
million in available liquidity remaining from its initial public offering and
the retention of earnings. All of this liquidity was advanced to the Finance
Company to fund its operations as of September 30, 1997. In addition, Summit
Financial has available lines of credit totaling $3 million with unaffiliated
financial institutions, of which all was available at September 30, 1997.
Further sources of liquidity for Summit Financial include management fees and
debt service which are paid by its subsidiary on a monthly basis and unsecured
borrowings from unaffiliated individuals.

Liquidity needs of Freedom Finance, primarily for the funding of loan
originations, acquisitions, and operating expenses, have been meet to date
through the initial capital investment of $500,000 made by Summit Financial,
borrowings from an unrelated private investor, and line of credit facilities
provided by Summit Financial and Summit National Bank, its sister company.

The Company's management believes its liquidity sources are adequate to
meet its operating needs and does not know of any trends, events or
uncertainties that may result in a significant adverse affect on the Company's
liquidity position.

CAPITAL RESOURCES
To date, the capital needs of the Company have been met through the
retention of net income and from the proceeds of its initial offering of
common stock. The Company believes that the rate of asset growth will not
negatively impact the capital base. Total equity at September 30, 1997 was
$12.9 million. The Company has no commitments or immediate plans for any
significant capital expenditures outside the normal course of business. The
Company's management does not know of any trends, events or uncertainties that
may result in the Company's capital resources materially increasing or
decreasing.

The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a material effect on the financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as defined
in the regulation) to risk-weighted assets (as defined) and to total assets.
Management believes, as of September 30, 1997, that the Company and the Bank
meet all capital adequacy requirements to which they are subject. At
September 30, 1997 and 1996, the Company and the Bank are both categorized as
"well capitalized" under the regulatory framework for prompt corrective
action. To be categorized as "well capitalized", the Company and the Bank
must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the table below. There are no current conditions or
events that management believes would change the Company's or the Bank's
category.

The following table presents the Company's and the Bank's actual capital
amounts (dollars in thousands) and ratios at September 30, 1997 as well as the
minimum calculated amounts for each regulatory defined category.

FOR CAPITAL ADEQUACY TO BE CATEGORIZED
ACTUAL PURPOSES "WELL CAPITALIZED"
------- ---------------------- ----------------------

ACTUAL RATIO AMOUNT RATIO AMOUNT RATIO
------- ------- ------------ --------- ------- -------------

Total Qualifying
Capital to Risk-
Weighted Assets:
Company
$14,400 11.79% $ 9,771 8.00% $12,214 10.00%
Bank
$12,845 10.75% $ 9,563 8.00% $11,954 10.00%

Tier 1 Capital to Risk-
Weighted Assets:
Company
$12,873 10.54% $ 4,886 4.00% $ 7,329 6.00%
Bank
$11,356 9.50% $ 4,781 4.00% $ 7,172 6.00%

Tier 1 Capital to
Average Assets
Company
$12,873 8.85% $ 5,818 4.00% $ 7,273 5.00%
Bank
$11,356 7.95% $ 5,716 4.00% $ 7,146 5.00%

EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles which require the measurement of
financial position and results of operations in terms of historical dollars,
without consideration of changes in the relative purchasing power over time
due to inflation.

Unlike most other industries, virtually all of the assets and liabilities
of a financial institution are monetary in nature. As a result, interest
rates generally have a more significant effect in a financial institution's
performance than does the effect of inflation.

The yield on a majority of the Company's earning assets adjusts
simultaneously with changes in the general level of interest rates. Most of
the Company's liabilities are issued with fixed terms and can be repriced only
at maturity. During periods of rising interest rates, as experienced at the
end of the first quarter of 1997, the Company's assets reprice faster than the
supporting liabilities. This causes an increase in the net interest margin
until the fixed rate deposits mature and are repriced at higher current market
rates, thus narrowing the difference between what the Company earns on its
assets and what it pays on its liabilities. Given the Company's current
balance sheet structure, the opposite effect (that is, a decrease in net
interest income) is realized in a falling rate environment. The degree of
interest rate sensitivity of the Company's assets and liabilities and the
differences in timing of repricing assets and liabilities provides an
indication of the extent to which the Company's net interest income may be
affected by interest rate movements.

ACCOUNTING, REPORTING AND REGULATORY MATTERS
In December 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 127, "Deferral
of the Effective Date of Certain Provisions of SFAS No. 125", an amendment to
SFAS No. 125 whish was effective December 31, 1996. This statement delays the
effective date of certain provisions of SFAS No. 125 until December 31, 1997.
The amended provisions included those related to the transfers of financial
assets and secured borrowings. The provisions in SFAS No. 125 related to
servicing assets and liabilities are not delayed by this amendment. The
adoption of this standard did not have a material effect on the Company's
financial statements.

In February 1997, the FASB issued SFAS No. 128, "Earnings per Share",
which is effective for both interim and annual periods ending after December
15, 1997. This statement supersedes Accounting Principles Board Opinion No.
15, "Earnings per Share". The purpose of this statement is to simplify
current reporting and make U.S. reporting comparable to international
standards. The statement requires dual presentation of basic and diluted EPS
by entities with complex capital structures (as defined by the statement).
The Company anticipates that adoption of this standard will not have a
material effect on EPS.

Also, in February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure", which is effective for financial
statements for periods ending after December 31, 1997. This statement applies
to both public and nonpublic entities. The new statement requires no change
for entities subject to the existing requirements. The Company anticipates
that adoption of this standard will not have a material effect on the Company.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purposes
financial statements. Under this statement, enterprises are required to
classify items of "other comprehensive income" by their nature in the
financial statement and display the balance of other comprehensive income
separately in the equity section of a statement of financial position.
Statement 130 is effective for both interim and annual periods beginning after
December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect the provisions of the
statement. The Company will adopt Statement 130 effective March 31, 1998 and
will provide the required disclosures in the Company's Form 10-Q.

Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement
establishes standards for the way public enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. Statement 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to
be restated, unless it is impractical to do so. It is not anticipated that
the adoption of this statement will materially effect the Company's current
method of financial reporting.

SUMMIT FINANCIAL CORPORATION

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Corporation and its subsidiaries from time to time and currently are
involved as plaintiff or defendant in various legal actions incident to its
business. There are no material actions currently pending.

Item 2. Changes in Securities.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to the shareholders for a vote at any time during
the quarter.

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits:

27.1 Financial Data Schedule

(b) Reports on Form 8-K:

None.

SUMMIT FINANCIAL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

SUMMIT FINANCIAL CORPORATION

Dated: November 10, 1997 /s/ J. Randolph Potter
-------------------------
J. Randolph Potter, President
and Chief Executive Officer

Dated: November 10, 1997 /s/ Blaise B. Bettendorf
---------------------------
Blaise B. Bettendorf, Senior
Vice President and Chief
Financial Officer